What to do when taxes were taken out of workers compensation pay?

[oleksiakd]

I am a full time firefighter/paramedic in Michigan. I had a injury on the job and was on workers compensation for 4 months. I work 24 hour shifts, and I am paid based on 112 hours/2 week pay period. Our union has an agreement with the township that while we are off the job (injury) on workers compensation, they continue to pay us our normal pay check/normal pay(with federal/state taxes taken out). I was told this was done for our benefit, so there is no lapse in our benefits. The workers compensation agency cuts checks that are payable to myself and the township I work for. When I came back to work, I had to endorse the checks and the township cashes them. I am aware that workers compensation payments are supposed to be tax exempt for Michigan/Federal taxes. So my question is, when I go to do my taxes(Turbotax), is there a page/section to claim when I was on workers comp, and how much I was paid during that period? Will that result in a tax refund?

[Belling]

You should have received workers compensation benefits that were equal to 80% of your after tax wages. Your workers comp benefits are not taxable and therefore do not need to be included. Furthermore, Receiving workers compensation benefits that were calculated based on your after tax take home pay, does not equal you actually paying taxes. 

Therefore, you are not entitled to any refund for tax withholding like you would be with your normal wages (Because no tax was withheld). This means you do not need to do anything on your tax return. 

[oleksiakd]

Per our agreement with the township, we receive 100% of our pay while we are off on a work related injury. So I never cashed any checks from workers comp agency myself. I continued to receive my normal pay. My pay stub was normal also. It was exactly what I received before I was off, ie: taxes were taken out of my checks that I received from my employer while was off work for 4 months.

[Belling]

In this case, all you need to do is enter the w-2 you receive from your employer into TurboTax under Wages & Income. Any taxes taken out of your pay will be included on your w2. Enter the w2 information into TurboTax exactly as it appears on your w2.

[oleksiakd]

And then will there be a place to claim that some of my income was from workers compensation? Because I was paid while I was off on workers comp, and this pay had taxes taken out of it. I should not have paid taxes on it. Is this something my employer needs to correct, or is there a spot on turbo tax to enter this?

[Belling]

There won't be a place to indicate that some of the wages were from workers compensation. Workers compensation is NEVER reported on your tax return, as it is usually disbursed after-tax. So, since your employer paid you the way that they did, and included it as income on your w-2, they SHOULD have already paid taxes on that income and that should reflect in your withholding amounts shown on your w-2.
If you believe that for some reason your employer did not include these amounts properly on your w2, you should contact your employer. Otherwise, enter your w2 information into TurboTax exactly as it appears on your w2, and you are done!

[starr2015]

What about if Workers Comp paid back The City of NY which still had me on payroll? I was given my regular check, with regular taxes taken out in 2015. In 2016 the Worker's Comp unit paid back my employer (city of NY public employee) and I received a W2-C dated 6/28/16. My taxes paid did not change as NYC was the one paying, but the amount they paid went down... I filed an amended return but I am receiving a larger refund as I overpaid more tax. Was this correct since Worker's Comp is nontaxable and I paid tax? Will I receive a separate W2 this year to represent how much I was paid on Worker's Comp personally?

[SSmith13]

Any update on how this played out for you? Where I work, our union has the same exact rule where we get paid out normal wages while off on injury. So like you, my paychecks still had taxes taken out even tho I’m told they should not have been meanwhile workers comp just cut a check to the city as reimbursement. Curious how you filed this and how it worked out? Thanks

[DianeW777]

Do not include any workmen's compensation on your tax return.  Any tax withholding should be returned to you once your employer sorts out the money reimbursed by the city.  At that time you should receive a corrected W-2 as well.

Advice:  Contact your employer to see how they will make these changes, then complete your tax return with any corrected wages and/or withholding.  The goal would be for you to have this information before the due date of your tax return.  If you do not receive the documents by the due date there are some options.

1. File an automatic six month extension as it gets close to the due date of April 15, 2024
2. File with the W-2 you you received then prepare to file an amended return when the IRS has accepted and processed the original return. 

@SSmith13 

[JeremyCaldwell]

I have had the same issue and I am unable to fin anyone who knows the answer. Taxes were taken out of my pay while I was on a Hazardous Duty Injury Status and worker's comp send the money to my employer and my employer taxed that money. I too am a firefighter. It seems firefighters are the only people getting taxed on worker's compensation benefits as there is no form or place to input our hours on a workers comp benefits status. I wish I could get a straight answer from someone, but it seems everyone on this thread doesn't seem to understand that taxes were taken out when they should not have been and we have no way pf getting them back.

[DianeW777]

Based on comments from one of the other fire fighters in this thread, it appears it may be something that needs to be discussed with your union representative.  Any money paid to you by your employer will be taxed as wages.  If you actually receive workers compensation no income will be reported to you and no withholding will take place.  

Please clarify whether you received workers compensation in addition to your wages.  We need further details and we are here to help.

[lacktran]

Wrong   The public employers do not routinely issue a corrected W-2 and taxes are taken out as if it was ordinary earned income. The question is, where can the wages incorrectly characterized as regular income be deducted in turbotax or the 1040

[AmyC]

In Issues for Firefighters | Internal Revenue Service states: any amounts received that are not exempt under a special provision, are reported on Form W-2 as wages. It does not matter what the payments are called.

Either many employers are failing with special provisions or it is taxable. If you want to indicate that it is not taxable, you can subtract it out with an explanation under other income.

First enter the income as usual.
Subtract non-taxable income
1. Miscellaneous Income, 1099-A, 1099-C, Start
2. Scroll to the bottom
3. Other reportable income, Start
4. Other taxable income?
5. Select YES
6. Description
7. Amount, enter your negative amount
8. continue

@lacktran